Revenue recognition

The FASB and IASB issued Revenue from contracts with
customers, their converged standard on revenue recognition in May 2014. The
standard provides a comprehensive, industry-neutral revenue recognition model intended to
increase financial statement comparability across companies and industries and
significantly reduce the complexity inherent in today's revenue recognition guidance.

Key developments in accounting for revenue recognition

The standard will apply to a company's contracts with customers, except for contracts
that are within the scope of other standards (e.g., leases, insurance, financial
instruments). Elements of contracts or arrangements that are in the scope of other
standards (e.g., leases) will be separated and accounted for under those standards.

The unit of account for revenue recognition under the new standard is a performance
obligation (a good or service). A contract may contain one or more performance obligations.
Although defined differently, the closest analogy in today's vernacular to a performance
obligation would be a "deliverable" under the multiple element arrangement revenue
guidance.

Performance obligations will be accounted for separately if they are distinct. A good
or service is distinct if the customer can benefit from the good or service either on its
own or together with other resources that are readily available to the customer, and the
good or service is distinct in the context of the contract. Otherwise performance
obligations will be combined with other promised goods or services until the entity
identifies a bundle of goods or services that is distinct.

The transaction price is allocated to all the separate performance obligations in an
arrangement. It reflects the amount of consideration to which an entity expects to be
entitled in exchange for transferring goods or services, which may include an estimate of
variable consideration to the extent that it is probable of not being subject to
significant reversals in the future based on the entity’s experience with similar
arrangements. The transaction price will also reflect the impact of the time value of money
if there is a significant financing component present in an arrangement. The transaction
price excludes amounts collected on behalf of third parties, such as some sales taxes.

Revenue will be recognized when an entity satisfies each performance obligation by
transferring control of the promised goods or services to the customer. Goods or services
can transfer at a point in time or over time depending on the nature of the arrangement.
Specific criteria are provided for when a performance obligation is satisfied over
time.

The incremental costs of obtaining a contract are capitalized if the costs are expected
to be recovered. Costs incurred to fulfill a contract are capitalized if they are not
covered by other relevant guidance, relate directly to a contract, will be used to satisfy
future performance obligations, and are expected to be recovered.

An entity can apply the new revenue standard retrospectively, including using certain
practical expedients. Alternatively, an entity can choose to recognize the cumulative
effect of applying the new standard to existing contracts in the opening balance of
retained earnings on the effective date, with proper disclosures.

During the FASB’s Financial Accounting Standards Advisory Council meeting, an SEC staff
member indicated that the SEC will not object if companies that retrospectively adopt the
revenue standard only recast the same years as presented in their primary financial
statements in the five year selected financial data table (i.e., a company will not need to
recast the two earliest years). However, companies that choose this option should provide
transparent disclosure regarding the basis of presentation and lack of comparability.

Existing revenue recognition guidance lacks consistency across industries and between
U.S. GAAP and IFRS, and fails to address certain types of arrangements. This new standard
is aimed at reducing or eliminating those inconsistencies, thus improving comparability,
and eliminating gaps in guidance.

The new standard will significantly affect the current revenue recognition practices of
many companies, particularly those that follow industry-specific guidance under U.S. GAAP.
We expect the Aerospace & Defense, Automotive, Communications, Engineering & Construction,
Entertainment & Media, Pharmaceuticals & Life Sciences, and Technology industries to be
impacted the most.

Depending on an entity's existing business model and revenue recognition practices, the
new standard could have a significant impact on the amount and timing of revenue
recognition, which in turn could impact key performance measures and debt covenant ratios,
and ultimately could affect contract negotiations, business activities, and budgets.

All entities will likely have to consider changes to information technology systems,
processes, and internal controls as a result of the new decision points and increased
disclosure requirements, among other aspects of the model.

What's next for the new revenue recognition standard?

The FASB's revenue standard is effective for
public entities for the first interim period within annual reporting periods beginning
after December 15, 2016 (nonpublic companies have an additional year). The FASB’s standard
will prohibit early adoption for public entities. The FASB’s standard will allow early
adoption for nonpublic entities, but no earlier than the effective date for public
entities. The IASB’s standard is effective for the first interim period within annual
reporting periods beginning on or after January 1, 2017, with early adoption permitted.

FASB Vice Chairman James Kroeker recently discussed the effective date of the new
revenue standard as the boards have received a number of requests to delay the
implementation date. The FASB will take their cues from the results of outreach that will
be performed over the next several months and will announce a decision no later than the
second quarter of 2015.

Accounting guide

Our global accounting and financial reporting guide describes the accounting for revenue
from contracts with customers under the converged U.S GAAP and IFRS revenue standard (ASC
606) issued in May 2014. It has been prepared to support entities as they identify the
implications of the new revenue recognition standard, evaluate its impact (on business
strategies, processes, systems, controls, financial statement recognition and required
disclosures) and prepare for implementation. Read
more

This quarterly publication is designed to keep directors informed about the latest accounting and financial reporting issues.

In transition

3/20/15 | Assurance services

FASB and IASB voted to propose new practical expedients and additional clarifications to the new revenue recognition standard. In transition provides an overview of the implementation issues discussed.

Quarter close

3/16/15 | Assurance services

The quarter close publication and video perspectives provide insight into the business and accounting impacts of declining oil and gas prices, recognizing the accounting implications of the Affordable Care Act, FASB, IASB and TRG developments related to implementing the new revenue standard, updates on FASB’s simplification proposals for stock-based compensation and income taxes, and more.

Webcast

Assurance services

During the 90-minute webcast, our panel will discuss the latest developments on implementation issues related to the new revenue recognition standard. They will share the latest information on the FASB’s and IASB’s projects to clarify the guidance in the areas of licenses and identifying performance obligations. The panel will also provide an update on the issues debated by the Transition Resource Group (TRG), including developments from the March 30th TRG meeting.

2/23/15 | Advisory services

Revenue recognition has routinely been viewed as one of the most difficult finance and accounting processes to get right. It represents one of the highest risks of material error on financial statements, and it is one of the leading causes of restatements. As companies move to the new standard, their compliance risk is likely to increase unless they have a well-planned, comprehensive approach to adoption.

Corporate Governance Series

2/6/15 | Center for Board Governance

This edition addresses understanding proposed accounting changes, assessing financial reporting, disclosure and communication implications, and taking a holistic approach to an accounting change. The publication also discusses the new revenue recognition standard, financial reporting and adoption considerations, and the broader business implications.

Key themes of the 2014 AICPA Conference were disclosure effectiveness, comparability, and the need for simplification.

Quarter close

12/8/14 | Assurance services

This edition of The quarter close provides insight into the potential effect of the revenue standard on compensation plans, what to look for to identify embedded derivatives in new or modified debt agreements, a spotlight on the FASB’s newly unveiled guidance for applying pushdown accounting, an SEC focus on internal controls, and more.

Webcast

Technology

As part of our webcast series on the new Revenue Recognition standard, we invite you to watch this webcast discussing the specific impacts the new standard will have on software companies. While the new standard will impact companies broadly, there are particular implications to software companies that deserve focus as companies plan for implementation.

11/18/14 | Assurance services

In this survey report, PwC and FERF teamed up to gain an understanding of where companies are relative to implementing new revenue recognition standard. While many companies do not know what the implementation journey fully looks like yet in terms of implementation processes, costs, timing, contract reviews, IT and systems, operations, quantification and reporting, they understand they should start preparing now.

TRG discussed five implementation issues and FASB announces outreach to determine if a delayed effective date is needed.

Accounting guides

10/30/14 | Assurance services

The inaugural edition of our "Financial statement presentation" accounting and financial reporting guide addresses U.S. GAAP presentation and disclosure requirements of common balance sheet and income statement accounts.

Webcast

Assurance services

Watch or participate in our on-demand CPE-eligible two-part webcast series where we discuss the new Revenue Recognition standard in detail, and help you understand the pervasive business implications, as well as what companies can do to prepare for implementation of the new standard. Additionally, we expand our discussion with a series of industry-specific webcasts that look at the impact the new revenue recognition standard will have on various sectors.

This quarterly publication is designed to keep directors informed about the latest accounting and financial reporting issues.

9/24/14 | Assurance services

The FASB and IASB have issued their long-awaited converged standard on revenue recognition. How will you be affected? This industry-specific supplement to our In depth publication highlights some of the areas that could create the most significant challenges for Asset management companies as they transition to the new revenue standard.

9/18/14 | Retail & consumer

What are the technical and reporting issues impacting retail and consumer products companies? PwC's Retail & Consumer KnowledgeBrief provides insights and summaries on two standards recently issued by the FASB, considerations and insights on the SEC’s continued focus on segment reporting, and more.

Quarter close

9/15/14 | Assurance services

This edition updates you on recent FASB, SEC and other regulatory and corporate governance topics. Learn what's new now, and what to look for in the near future. We invite you to download our Q3 publication and view our new video perspectives.

Do you think the revenue recognition standard only impacts revenue? Think again! Hear our experts discuss our top 5 financial statement line items that may be impacted OTHER than revenue.

9/8/14 | Assurance services

The FASB and IASB have issued their long-awaited converged standard on revenue recognition. How will you be affected? This industry-specific supplement to our In depth publication highlights some of the areas that could create the most significant challenges for Real Estate companies as they transition to the new revenue standard.

Accounting guides

8/11/14 | Assurance services

Our global accounting and financial reporting revenue recognition guide describes the accounting for revenue from contracts with customers under the converged U.S GAAP and IFRS revenue standard (ASC 606) issued in May 2014. It has been prepared to support entities as they identify the implications of the new revenue recognition standard, evaluate its impact (on business strategies, processes, systems, controls, financial statement recognition and required disclosures) and prepare for implementation.

7/29/14 | Assurance services

The FASB and IASB have issued their long-awaited converged standard on revenue recognition. How will you be affected? This industry-specific supplement to our In depth publication highlights some of the areas that could create the most significant challenges for technology companies as they transition to the new standard.

7/23/14 | Technology

The deliberation is over: On May 28, 2014, the FASB and the IASB released their new standard for revenue recognition, to take effect in 2017 for public companies. The new guidance may constitute the biggest accounting change the world has seen in over a decade, because revenue recognition informs a wide array of business decisions. Technology companies that start preparing for the change now will be in the best position to seize the opportunities that will come with the change—while also surmounting the challenges.

7/16/14 | Assurance services

The FASB and IASB have issued their long-awaited converged standard on revenue recognition -- how will you be affected? This industry-specific supplement to our In depth highlights some of the areas that could create the most significant challenges for aerospace and defense entities as they transition to the new standard.

Potential impact of new revenue accounting rules on incentive compensation plans and how employers can begin to prepare.

Webcast

Aerospace & defense

Watch our webcast replay to learn what specific impacts the new revenue recognition standard will have on the Aerospace & Defense industry, and download our industry supplement for examples and further insights into ways entities within the industry are likely to be affected by the revenue standard.

The Q2 2014 edition focuses on five IPO reminders for boards, FASB's new guidance on discontinued operations, and the Venezuelan exchange rates.

6/19/14 | Assurance services

The FASB and IASB have issued their long-awaited converged standard on revenue recognition. How will you be affected? This industry-specific supplement to our In depth publication highlights some of the areas that could create the most significant challenges for Pharmaceutical & Life Sciences companies as they transition to the new revenue standard.

6/18/14 | Assurance services

The FASB and IASB have issued their long-awaited converged standard on revenue recognition -- how will you be affected? This industry-specific supplement to our In depth highlights some of the areas that could create the most significant challenges for automotive entities as they transition to the new standard.

6/18/14 | Assurance services

The FASB and IASB have issued their long-awaited converged standard on revenue recognition -- how will you be affected? This industry-specific supplement to our In depth highlights some of the areas that could create the most significant challenges for engineering and construction entities as they transition to the new standard.

6/18/14 | Assurance services

The FASB and IASB have issued their long-awaited converged standard on revenue recognition -- how will you be affected? This industry-specific supplement to our In depth highlights some of the areas that could create the most significant challenges for retail and consumer entities as they transition to the new standard.

Webcast

Technology

Join us for an expanded discussion on the specific impacts the new revenue recognition standard will have on the Technology industry. While the new standard will impact companies broadly, there are particular implications to Technology companies that deserve focus as companies plan for implementation.

The FASB and IASB have issued their long-awaited converged standard on revenue recognition -- how will you be affected? Accompanying this comprehensive In depth are the following industry-specific supplements with examples and further insights into ways entities within the industry are likely to be affected by the revenue standard: (1) aerospace & defense, (2) asset management, (3) automotive, (4) communications, (5) engineering & construction, (6) entertainment & media, (7) industrial products/manufacturing, (8) pharmaceuticals, (9) real estate, (10) retail & consumer, and (11) technology.

In depth

6/10/14 | Assurance services

A lot has changed since our Dataline publication series was first introduced many years ago. We’ve recently reevaluated its overall purpose, content, and name. We’ve renamed our Dataline publication series to In depth going forward.

Webcast

Communications

Join us for an expanded discussion on the specific impacts the new revenue recognition standard will have on the Communications industry. While the new standard will impact companies broadly, there are particular implications to Communications companies that deserve focus as companies plan for implementation.

Webcast

Entertainment & media

As part of our webcast series on the new Revenue Recognition standard, we invite you to join us for an expanded discussion on the specific impacts the new standard will have on the Entertainment & Media sector. While the new standard will impact companies broadly, there are particular implications to Entertainment & Media companies that deserve focus as companies plan for implementation.

3/27/14 | Center for Board Governance

This quarterly publication is designed to keep directors informed about the latest accounting and financial reporting issues.

10Minutes

3/19/14 | Assurance services

After much deliberation, the FASB and IASB are set to release a final global revenue recognition standard in the coming months that will do away with current industry-specific accounting and instead apply a single set of principles to all revenue transactions. Changes to practices, processes and systems could ripple through your business. 10Minutes on revenue recognition provides information about the standard as well as insight into ways in which some companies are preparing for the broader impact.

The prevalence of estimates in the new revenue recognition standard could cause sudden spikes or drastic dives in reported revenue and earnings.

Corporate Governance Series

3/3/14 | Assurance services

This PwC publication is intended to help management and the board of directors of public companies prepare for the annual meeting of shareholders. It contains example questions on topics that may be top-of-mind for shareholders, along with background information and suggested actions for management’s consideration.

The EITF met on June 11, 2013 to discuss six issues. PwC's EITF observer provides you an insightful summary of decisions reached and the changes affecting US GAAP.

Dataline

3/8/13 | Assurance services

The FASB and IASB substantively concluded redeliberations of their joint 2011 exposure draft, Revenue from Contracts with Customers, in February 2013. The boards reached decisions on the remaining key issues including disclosures, transition, and effective date at their most recent meetings. Details of these decisions, as well as a comprehensive look at the model at the end of the key redeliberations, are included in this Dataline. Any remaining “sweep” or new issues identified by the boards will be discussed at future board meetings, as needed.

Dataline

1/23/13 | Assurance services

The FASB and IASB (the "boards") met in November and December 2012 to continue redeliberating their joint revenue recognition project. The boards reached tentative decisions on key remaining measurement and recognition issues, including the constraint for recognizing revenue from variable consideration, collectibility, licenses, allocation of transaction price, and contract acquisition costs.

Dataline

12/13/12 | Assurance services

The 2012 AICPA National Conference on Current SEC and PCAOB Developments (the Conference) was held on December 3, 4, and 5, 2012. Conference presenters included representatives from regulatory and standard-setting bodies, auditors, users, preparers, industry experts, and an investor panel. Remarks centered mainly on the status of potential incorporation of IFRS into the U.S. financial reporting system, updates on regulatory and financial reporting matters, capital formation, and the auditing profession’s impact on the reliability and usefulness of financial statements.

Dataline

12/3/12 | Assurance services

This year end, entities continue to face many complex financial reporting issues such as providing new fair value disclosures, accounting for debt modifications, and evaluating revenue recognition guidance. Economic challenges around the world continue to have broad financial reporting implications. While not an all-inclusive list, this Dataline is intended to serve as a timely reminder of leading practices and lessons learned on key issues that companies should consider as they navigate the year-end financial reporting process.

Dataline

10/25/12 | Assurance services

The FASB and IASB (the “boards”) met in September and October 2012 to continue redeliberating their joint revenue recognition project. They reached tentative decisions on the constraint for recognizing variable consideration, certain issues related to collectibility, time value of money, distributor and reseller arrangements, contract modifications, and measuring progress toward satisfying a performance obligation. This Dataline summarizes the boards’ redeliberations and tentative decisions made at the September and October joint meetings and the potential implications for certain industries.

Dataline

8/9/12 | Assurance services

The FASB and IASB met in July to begin redeliberating their joint revenue recognition project. This PwC Dataline summarizes the boards’ redeliberations and tentative decisions made during the July board meeting, and the potential effects on certain industries. It also includes audio links to additional information on selected topics.

This Practical tip highlights the U.S. GAAP disclosure requirements and considerations relating to changes in contract estimates when using the percentage-of-completion method of accounting.

Dataline

5/31/12 | Assurance services

The FASB and IASB released an updated exposure draft, Revenue from Contracts with Customers, on November 14, 2011. The boards received approximately 360 comment letters in response to the updated exposure draft, down significantly from the nearly 1,000 comment letters received on the exposure draft released in June 2010. Since issuing the updated exposure draft, the boards have continued extensive outreach efforts, including four public and numerous private, industry-focused roundtables. This PwC Dataline addresses the areas of focus in roundtables and in comment letters received by the boards on the updated exposure draft.

Accounting guides

3/31/09 | Technology

Software revenue recognition has not gotten easier. However, one of the keys to success is having the right tools. Our guide to software revenue recognition reflects the trends and challenges as of March 31, 2009, along with a chapter dedicated to Software-as-a-Service.